Strategy Document:

Indian Scenario:

The year 2018-19 flagged off with promising economic outlook supported by benign inflation,
favourable interest rates, close to normal rainfall forecast and strong global economic growth. In Q1, the
Indian economy registered a robust growth of 8% which gave an indication of economic activities
returning to near normal post the GST roll-out. However, the momentum gained at the start didn’t
sustain during the rest of the year and the economy faced major challenges leading to a slowdown in
domestic consumption in the later part of the year. The pace of global economy also slowed down and
couldn’t provide meaningful support to the Indian economy. The Government and the RBI undertook a
slew of measures to provide the necessary stimulus to the economy

India’s passenger vehicle market grew by 2.7% in 2018-19 against 7.9% in 2017-18. This is the lowest
annual industry growth recorded in previous seven years. Among the three broad industry segments,
the utility vehicles segment that accounts for about 28% of industry sales, grew by 2.1%. The other two
segments, passenger cars and vans, grew by 2.0% and 13.1% respectively. The urban markets witnessed
weak demand while the non-urban markets saw relatively better growth. The demand for diesel models
continued its weakening trend, and its industry share declined from 40% to 36%.
 Key trends shaping Indian Auto Industry:

Favorable macroeconomic and demographic trends

Currently, the automotive sector contributes more than 7 percent to India’s GDP.4 The
Automotive Mission Plan 2016–26 sets an aspiration to increase the contribution to 12 percent.5

A number of economic trends could help in meeting this target. Rapid urbanization means the
country will have over 500 million people living in cities by 2030—1.5 times the current US population.
Rising incomes will also play a role, as roughly 60 million households could enter the consuming class
(defined as households with incomes greater than $8,000 per annum) by 2025. At the same time, more
people will join the workforce. Participation could reach 67 percent in 2020, as more women and youth
enter the job market, raising the demand for mobility.

Continued government focus on supporting the industry

Through the Automotive Mission Plan, the National Electric Mobility Mission Plan (NEMMP), and
other initiatives, the government seeks to achieve two objectives—facilitate long-term growth in the
industry and reduce emissions and oil dependence.

In the Automotive Mission Plan 2026, the government and industry set a target to triple industry
revenues, to $300 billion, and expand exports sevenfold, to $80 billion. To meet these aims, it is
estimated that the sector could contribute more than 60 million additional direct and indirect jobs, and
the result could be improved manufacturing competitiveness and reduced emissions.

The development of India as a manufacturing hub

The World Economic Forum ranks India 30th on the global manufacturing index, which assesses
the manufacturing capabilities of more than 100 countries. The government’s “Make in India” initiative
has played an important role in elevating country’s position. In the past three to four years, India
improved on nine out of ten parameters for ease of doing business.

Although there is still a long way to go before India becomes a leader in the manufacturing
arena, companies in the automotive sector are embracing this opportunity to leverage India as a hub for
low-cost, high-quality products. After creating a strong value proposition in mini cars, India is gaining
global recognition in the compact sedan and SUV category.

Shared mobility. Penetration of shared mobility in India remains low compared with China and
the United States, but a major shift is under way in densely populated cities where the use of e-hailing
cabs costs less, comparatively, than driving a personal car. Major stakeholders from the government to
automakers to venture-capital funds and cab aggregators agree that the industry will continue to grow,
becoming a significant alternative to commuting in growing urban areas. For example, two of the major
cab aggregators covered 500 million trips together in 2016; that number is expected to rise with
innovative models like cab-pooling and pay-later options.

The pace of this change likely depends on three main triggers: first is asset utilization, where cab
aggregators’ ability to sweat their assets will determine their ability to expand and offer more
competitive rates to customers while letting drivers earn. Second, clarity in regulations will simplify
compliance and encourage more people to join the movement. Third, several cities in India are investing
heavily to upgrade their transport infrastructure. This is not just limited to building metros in big cities.
The role of shared-mobility players will evolve as transport infrastructure becomes mature. At the
moment, rides and driver incentives are funded by private capital, which makes the model economically
viable. It will be important to see how the industry fares once private capital dissipates.

Connected vehicles. Connectivity is still in the early stages of adoption in India. A minuscule
share of vehicles sold in India come with factory-fitted connectivity features, but the mass adoption of
smartphones, coupled with low data costs, could enable connectivity features to proliferate.

There are several connectivity-linked applications that are picking up in India. Basic in-car
entertainment, navigation, and in-car connectivity (for example, through Bluetooth) have evolved
rapidly over the last decade. More advanced telematics features that utilize car sensor data, driving
behavior, and vehicle-health parameters are also evolving, particularly with aftermarket solutions.
Several start-ups are leveraging this data coupled with proprietary hardware and algorithms to build
solutions centered on improving safety and security, tracking vehicle activity or theft, monitoring and
influencing driver behavior, and enabling timely repairs and maintenance.